Yen and Yuan Rally in Tandem: A Hot Money Effect?

Market Overview

Weaker-than-expected U.S. retail sales data triggered a rally in U.S. Treasuries, accelerating price gains and deepening the decline in yields. The 10-year Treasury yield fell to its lowest level in nearly a month, while the U.S. Dollar Index extended its intraday losses to mark a fresh one-week low.

The Japanese yen strengthened sharply, rising more than 1% intraday for a second consecutive session. Meanwhile, the offshore Chinese yuan climbed to its strongest level in nearly three years, briefly breaking below 6.91 per dollar for the first time in that period. Bitcoin declined intraday, falling below USD 68,000 and retreating nearly 4% from its session high.

Commodities paused after two consecutive days of gains. Spot gold fell more than 1% intraday, briefly slipping below USD 5,000 per ounce, while silver futures dropped over 3% at one point. Both metals saw short-lived rebounds following the release of U.S. retail sales data. Crude oil prices also weakened, down more than 1% at one stage.

Former President Trump stated that a second round of talks with Iran is expected next week, reiterating that “Iran will not be allowed to possess nuclear weapons or missiles.” He added that if negotiations fail, the U.S. may deploy an additional aircraft carrier strike group to the Middle East.

Key Themes to WatchChina‘s Quantitative Easing Continues

In its Q4 Monetary Policy Implementation Report, the People’s Bank of China reaffirmed its commitment to maintaining a moderately accommodative monetary policy and announced that government bond trading operations will be conducted on a regular basis.

The report emphasized that, in addition to effectively implementing existing policy measures, the PBoC has rolled out a comprehensive package of monetary and financial policies to strengthen countercyclical adjustments. These efforts aim to support stable economic growth and ensure orderly financial market operations. Looking ahead, the central bank will continue regular government bond transactions, closely monitor long-term yield movements, and adjust the scale of operations with flexibility.

Weak U.S. Retail Sales Lift Rate-Cut Expectations

U.S. retail sales for December unexpectedly stalled on a month-over-month basis, signaling fading consumer momentum toward the end of the holiday season. The data underperformed both November‘s 0.6% growth and Wall Street’s expectation of a 0.4% increase.

Holiday spending proved soft and uneven. Eight of the thirteen retail categories recorded declines, with spending among lower-income households particularly weak. While higher-income consumers continue to benefit from asset price appreciation, overall consumption remains constrained by elevated prices and adverse weather conditions.

Data to Watch (GMT+8)

21:30 (ET)

U.S. January Non-Farm Payrolls Report